Washington Washout Rekindles GM-Chrysler Romance

News, 19 December 2008

DETROIT: In a move instigated by Chrysler's owner, private equity firm Cerberus Capital Management, talks with General Motors were reinstated after Cerberus conceded an earlier sticking point – the surrender of an unstated tranche of the controlling stock it holds in Chrysler.

As the sands of time – and cash – near the bottom of the hourglass for both companies, the concession signals the automakers' deperation to appease Washington and lay hands on the $14 billion (€9.75bn; £9.06bn) auto industry rescue package.

The other attraction of merger for Cerberus is the opportunity it would present to protect its stakes in two ailing auto-finance companies, GMAC and Chrysler Financial, the survival of both being crucial to the existence of their parent companies.

Congress had already made it clear to Cerberus that the latter's injection of fresh capital into Chrysler is an essential element in any federal rescue plan.

But the moneymen were less than eager to open their wallets, arguing that shareholders in rival mendicants GM and Ford Motor Company had not been asked to inject more capital.

Cerberus also claimed that its investment charter disallowed any such move. But this hurdle could be overcome if the private equity firm's principals were willing to give away a proportion of their shares in Chrysler as part of an overarching revamp.

The privateers' lack of enthusiasm for such a plan is that it would confer on any future government auto overseer the right to distribute Cerberus' stake to the United Auto Workers union or even to GM.

The resuscitation of merger talks, however, suggests that Dr Sam Johnson's dictum kicked-in somewhere along the line.

"Depend upon it, Sir," said the sage, "when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully."

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